Are you losing trust in Shopify? These words from the company president might change your mind


Shopify (STORE 11.10%) has been a big laggard over the past year, with shares of the e-commerce giant falling 75% in the past 12 months. The company’s financial results suffered when its pandemic-related tailwind came to an abrupt halt, and economic issues such as inflation didn’t help either. Although the market continues to punish Shopify, the company showed encouraging signs in its latest quarterly update.

Management appears confident that the tech giant’s long-term prospects are intact. Let’s take a look at some encouraging words that Shopify President Harley Finkelstein said during the company’s second quarter earnings call and what that might mean for investors.

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Build a solid foundation for growth

Net losses and economic issues are just a few of the issues Shopify is facing. And given these challenges, it’s not too surprising that many investors have decided to put their money elsewhere. But as the old saying goes, what doesn’t kill makes you stronger. Shopify believes it is taking steps that will only strengthen its business and help it build a strong foundation for the future. As Finkelstein said, “We believe we will emerge stronger from 2022 and this macroeconomic cycle, and our prospects for long-term growth and profitability remain strong.”

There’s quite a bit to unpack there. First, why does the company think it will emerge stronger from the current cycle? Here’s just one reason: Shopify has taken steps to help its customers – merchants running online storefronts – better serve their customers and reach a wider range of consumers around the world. Shopify’s efforts in this direction include Shopify Markets, a cross-border management tool it launched last year to allow merchants to customize their storefronts to specific geographic regions from a single store.

Shopify also continues to go global, introducing various tools, including Shopify Payments and Shopify Shipping, to countries such as France, Italy, and others during the second quarter.

How will these initiatives (and others) help Shopify emerge stronger from the current ordeal? There is no doubt that retail spending will increasingly shift to e-commerce avenues. That’s why the company’s long-term growth prospects are attractive. Estimates vary, but according to some projections, the e-commerce market will be worth more than $27 trillion by 2027, up from $10.4 trillion in 2020. Shopify is helping its merchants capitalize on this trend. After all, e-commerce is a global phenomenon.

The ability of its merchants to do business globally will positively impact Shopify’s Gross Merchandise Volume (GMV, the total value of transactions made on its platform). This will push Shopify revenue in the right direction. Finkelstein also mentioned Shopify’s “leading position” in the industry. Last year, the company’s share of retail in the United States was 10.3%, second only to the clear leader, Amazon.

What is your investment calendar?

Shopify isn’t off the hook just yet, not while we’re still struggling with economic (and other) issues. For those looking to make a profit on its shares overnight – or even within the next year – I wouldn’t recommend buying today. But for people with a much longer investment horizon, say five years or more, Shopify is still a solid choice. Finkelstein is right that the opportunities ahead remain enormous.

And the company has already made solid progress in its market while creating a competitive advantage in the process. Shopify benefits from high switching costs because the time, energy, and money it takes its merchants to develop and maintain online storefronts are investments. These merchants will be reluctant to switch platforms. The company can strengthen its grip on its current pool of customers and attract new ones while continuing to add new features and services to run its business efficiently.

A growing customer base, coupled with a growing industry and a strong moat will help Shopify deliver above-market returns over the long term. It is still worth staying with the company despite its challenges.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Prosper Junior Bakiny holds positions at Amazon and Shopify. The Motley Fool holds positions and recommends Amazon and Shopify. The Motley Fool recommends the following options: $1140 January 2023 Long Calls on Shopify and $1160 January 2023 Short Calls on Shopify. The Motley Fool has a disclosure policy.


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